I have bought a unlocked iphone of ebay, so just want to clarify a few things to avoid turning it into a ipod touch

I get that the first time i connect to my mac, and run itunes it will suggest i update, and i say no ta and dont ask me again.
Can i still sync all other stuff, contacts, safari etc no problems?
Is there anything else i should do to stop the update?
Also if i restore the phone, does this relock or just delete apps and contacts etc..
Cheers